SC scraps parts of regulation on tax exemptions for minimum wage earners

MANILA –The Supreme Court ordered the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) to scrap several provisions of Revenue Regulation No. 10-2008 that restrict the enforcement of Republic Act No. 9504 providing tax exemption for minimum wage earners (MWEs) in 2008.

In a 56-page decision penned by Chief Justice Ma. Lourdes Sereno dated Jan. 24, the Court granted the consolidated petitions for certiorari, prohibition, and mandamus against such regulation, stating that the DOF and the BIR committed grave abuse of discretion of discretion in promulgating Sections 1 and 3 of RR 10-2008.

“Sections 1 and 3 of RR l0-2008 add a requirement not found in the law by effectively declaring that an MWE who receives other benefits in excess of the statutory limit of PHP30,000 is no longer entitled to the exemption provided by R.A. 9504,” the SC declared.

The SC noted that the increased exemptions were already available much earlier than the required time of filing of the return on April 15, 2009 while R.A. 9504 came into law on July 6, 2008 or more than nine months before the deadline for the filing of the income tax return for taxable year 2008.

“Here, not only did R.A. 9504 take effect before the deadline for the filing of the return and payment for the taxes due for taxable year 2008, it took effect way before the close o f that taxable year. Therefore, the operation of the new set of personal and additional exemption in the present case was all the more prospective,” the Court held.

It added that there was nothing in R.A. 9504 that provides or even suggests a prorated application of the exemptions for taxable year 2008.

The Court en banc also declared null and void the Sections 1 and 3 of RR No.10-2008 insofar as they disqualify MWEs who earn purely compensation income from the privilege of the MWE exemption in case they receive bonuses and other compensation-related benefits exceeding the statutory ceiling of PHP30,000.

”Also declared null and void is the provision in Section 3 that provides for the prorated application of the personal and additional exemptions under R.A 9504 for taxable year 2008, and for the period of applicability of the MWE exemption to begin only on July 6, 2008,” the SC said.

The SC also directed respondents DOF and the BIR to grant a refund, or allow the application of the refund by way of withholding tax adjustments, or allow a claim for tax credits by all individual taxpayers whose incomes for taxable year 2008 were subjected to prorated increase in personal and additional tax exemption.

”Direct respondents Secretary of Finance and Commissioner of Internal Revenue to grant a refund, or allow the application of the refund by way of withholding tax adjustments, or allow a claim for tax credits by all individual taxpayers whose incomes for taxable year 2008 were the subject of the prorated increase in personal and additional tax exemption; and all MWEs whose minimum wage incomes were subjected to tax for their receipt of the 13th month pay and other bonuses and benefits exceeding the threshold amount under Section 32(B)(7)( e) of the 1997 Tax Code,” the SC said.

The SC noted that the increased exemptions were already available much earlier than the required time of filing of the return on April 15, 2009 while R.A. 9504 came into law on July 6, 2008 or more than nine months before the deadline for the filing of the income tax return for taxable year 2008.

“Here, not only did R.A. 9504 take effect before the deadline for the filing of the return and payment for the taxes due for taxable year 2008, it took effect way before the close of that taxable year. Therefore, the operation of the new set of personal and additional exemption in the present case was all the more prospective,” the Court held.

It added that there was nothing in R.A. 9504 that provides or even suggests a prorated application of the exemptions for taxable year 2008.

Thus, the SC said DOF and the BIR went beyond the enforcement of the law in issuing the subject revenue regulations mandating the prorated application of the new amounts of personal and additional exemptions for 2008.

“Therefore, there is no legal basis for the BIR to reintroduce the prorating of the new personal and additional exemptions. In so doing, respondents overstepped the bounds of their rule-making power. It is an established rule that administrative regulations are valid only when these are the laws they administer,” the High Tribunal added.

The decision stemmed from the consolidated petitions filed by several lawmakers, individuals and labor groups seeking to nullify the said provisions of RR 10-2008.

The revenue regulation was issued by the BIR on September 24, 2008 implementing the provisions of R.A 9504, which granted, among others, income tax exemption MWEs, as well as an increase in personal and additional exemptions for individual taxpayers.

The petitioners argued that the subject revenue regulation departs from the actual intent of R.A. 9504 as it restricts the implementation of the MWEs’ income tax exemption only to the period starting from July 6 2008, instead of applying the exemption to the entire year 2008.

They also challenged the BIR’s adoption of the prorated application of the new set of personal and additional exemptions for taxable year 2008.

They also contest the validity of the RR’s imposition of a condition for the availment by MWEs of the exemption provided by R.A. 9504 such that in the event they receive other benefits in excess of P30,000, they can no longer avail themselves of that exemption.

The petitioners contend that the law provides for the unconditional exemption of MWEs from income tax.